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Notes from Apple’s Q3 2014 earnings call

Apple’s conference call after announcing its Q3 2014 financial results kicked off with Apple CEO Tim Cook discussing Yosemite, iOS 8, and Swift. Cook also touched on CarPlay, HealthKit, HomeKit, in addition to the company’s new partnership with IBM.

Getting to the financial results, Cook announced that Apple set a June quarter record, with iPhones also setting a new third quarter record. “iPad sales met our expectations but we realize they didn’t meet many of yours,” Cook said, noting an overall decline in the tablet markets while moving on to citing surveys in which customers expressed satisfaction with iPad.

Cook expressed excitement with Apple’s acquisition of Beats, citing Beats’ subscription service, “access to rare talent,” and a growing lineup of products. As he’s done in the past, Cook briefly referenced upcoming new products and services.

Apple CFO Luca Maestri talked about the iPhone and its impressive results in the quarter. As for the iPad, he announced increased sales in the Middle East, China, and India, while adding that such growth was offset by lower sales in “more mature markets.” iTunes revenue was up to $2.6 billion. Apple expects $37 billion to $40 billion in revenue next quarter, with a gross margin between 37 and 38 percent. Maestri said he expects a busy fall, as Apple is “very excited” about what’s in the pipeline.

When asked about decreased tablet sales, Cook said that “significant innovation” can still come to the iPad, “and we plan on doing that.” Cook believes there’s a “substantial upside” in iPad sales within business, which led him to remark on the recently announced IBM partnership. “I honestly believe the opportunity is huge,” he said.

On sales in China this quarter, Cook said, “We thought it would be strong, but it well went past what we thought.” He noted that unit growth was “off the charts.”

Asked about trade-in programs for iPhone, Cook said trade-ins are “hugely beneficial for our ecosystem,” as those phones often go to “price sensitive” customers. Cook also believes the cannibalization factor is low due to that price sensitivity, while pointing out the high resale value of Apple products. But he also noted, “It’s very different to quantify with certainty.”

Cook said iPhone 5c had the highest growth of the current three iPhone tiers in the quarter.

When asked how Apple is changing, in reference to the Beats acquisition and the IBM partnership, Cook said that although the company is always on the lookout for acquisitions, “we don’t let our money burn a hole in our pocket.” Again, Cook referenced Beats’ subscription service and products, while taking the time to note that Beats has “a very rare set of talent that we think can do great things in Apple.”